Survey Income - Census.govSurvey of Income and Measuring Poverty and Crises: ... Income/Liquid Assets: Income (1) plus liquid assets; (3) Income/Net Worth: Income (1) plus assets,

Survey of Income and

Measuring Pover ty and Cr ises : A Comparison o f Annual and Subannual

Account ing Per iods Using t he Survey of Income and Program P a r t i c i p a t i o n

No. 8805 32 M a r t i n David and John F i t z g e r a l d

J u l y 1988

F i nanc ia l suppor t f rom t h e Department o f Hea l t h and Human Serv ices th rough t h e I n s t i t u t e f o r Research on Pover ty and N a i i ona l Science Foundat ion SES #8411785 i s g r a t e f u l l y acknowledged.

The views expressed i n t h i s paper a r e t h o s e o f t h e author and'Go n o t necessa r i l y r e f l e c t those o f t h e Bureau o f t h e Census.

Table of C o n t e n t s

1 OFFICIAL VERSUS UNOFFICIAL MEASURES OF POVERTY

2. POVERTY INCIDENCE AND THE ACCOUNTINC PERIOD

3 . TIME AGGREGATION OF POVERTY MEASURES

4 . PAST MPIKICAL RESULTS ON POVERTY AND WEALTH

5 . CONCEPTUAL ADVANTAGES OF A CRISIS MEASURE AND THE RELATIONSIIIP BETWEEN CRISIS AND OFFICIAL MEASURES

6 . MEASUREYEW ISSUES USING S I P P

7. POVERTY AND CRISIS LEVELS

8. POVERTY AND CRISIS TRANSITIONS

9 . AIZERNATIVE ASSET MEASURE

10. SIGNIFICANT DEMOGRAPHIC RELATIONSHIPS

11. TARGET EFFICIENCY, THE ACCOUNTING PERIOD, AND MEASURE OF HARDSHIP

12. CONCLUSION

Measuring Pove r ty and C r i s e s : A Comparison of Annual and Subannunl Accountiny: P c r i o d s Using t h c Survey of

Income and Program P a r t i c i p a t i o n

I OFFICIAL V E R S U S UNOFFICIAL MEASUKES OF POVERTY

Pove r ty s t a t i s t i c s publ ished i n t h e P-60 s e r i e s of t h e Curren t

P o p u l a t i o n Repor t s r e l y on a n e s t a b l i s h e d s e t of d e f i n i t i o n s . Pover ty

t h r e s h o l d s t h a t a r e a d j u s t e d annua l ly by t h e O f f i c e of Management and t h e

Budget a r e compared t o cash incomes. Debate on t h e meaning of t h i s com-

p a r i s o n has r a i s e d q u e s t i o n s about both t h e t h r e sho ld and t h e r e sou rces . , t o which t h r e s h o l d s a r e compared. The Bureau of t h e Census he ld a con-

f e r e n c e on t r e a t m e n t o f non-cash income (1985); t h e I n s t i t u t e f o r

Research on Pove r ty h e l d a symposium on t h e r o l e of a s s e t t e s t s f o r

d e f i n i n g e l i g i b i l i t y f o r w e l f a r e programs (1977); t h e economics pro-

f e s s i o n has had e x t e n s i v e d e b a t e on t h e a p p r o p r i a t e n e s s of a l t e r n a t i v e

t e c h n i q u e s f o r comparing t h e well-being of d i f f e r e n t k inds of f a m i l i e s - .

(Deaton and Muellbauer , 1980; Danzfger, e t a l . , 1984; van d e r Gaag and

Smolensky , 1982. ) . .

I n t h i s paper w e demons t ra te t h a t t h e o f f i c i a l pove r ty measure i s

c o n c e p t u a l l y d e f i c i e n t , and d i s c u s s how t o remedy those d e f i c i e n c i e s t h a t

have va ry ing impact on measures de f ined on a l t e r n a t i v e accoun t ing

p e r i o d s . In o r d e r t o avoid confus ion , w e r e f e r t o a g e n e r i c problem of

unde r s t and ing problems o f d e p r i v a t i o n a s measuring poverty. The proce-

d u r e s used i n P-60 and o t h e r government r e p o r t s a r e des igna t ed o f f i c i a l

p o v e r t y measurements. We i n t r o d u c e a n a l t e r n a t i v e t h a t w e r e f e r t o a s

cr is is measurement.

2. POVERTY INCIDENCE AND THE ACCOUNTING PERIOD

"Poverty" connotes a c o n d i t i o n of economic d e p r i v a t i o n . It g e n e r a l l y

r e f e r s t o t h e c u r r e n t s i t u a t i o n of a person o r fami ly , bu t a l s o may

d e s i g n a t e n c i r c u n ~ s t a n c e of l o n g e r d u r a t i o n -- "Half of a l l c h i l d r e n grow

up i n f a m i l i e s i n poverty". A t one extreme wc a r e i n t e r e s t e d t o know who

i s c h r o n i c a l l y poor ( i n pover ty ove r a l i f e t i m e ) and who a r e exposed t o

pove r ty a t some p o i n t i n t h e i r l i f e t i m e s . A t t h e o t h e r extreme we a r e

i n t e r e s t e d i n knowing who is poor a t t h i s i n s t a n t of t ime and how t h e

s o c i a l " s a f e t y ne t" responds t o t h e d e p r i v a t i o n of t hose i n poverty.

Measuring pove r ty ove r l ong accoun t ing pe r iods obv ious ly g i v e s an

i n s i g h t i n t o problems r e l a t e d t o ch ron ic dep r iva t ion . Long account ing

p e r i o d s a l s o lower t h e p r o b a b i l i t y t h a t a person who i s nonpoor on a

l i f e t i m e b a s i s w i l l b e measured a s poor due t o a t r a n s i t o r y income sho r t -

f a l l .

Measuring pover ty ove r a s h o r t pe r iod w i l l e n l a r g e t h e count of poor . .

from c h r o n i c a l l y poor t o a group t h a t h a s temporary ha rdsh ips . I f con-

sumption flow is used t o c a l c u l a t e t h e measure of pover ty , changing from

long t o s h o r t a ccoun t ing p e r i o d s causes m i n i m a l s t a t i s t i c a l d i f -

f i c u l t i e s . If income f lows are used t o c a l c u l a t e pover ty , t h e problem is

t o d i s t i n g u i s h t h o s e w i t h r e a l ha rdsh ips from o t h e r s who can a l l e v i a t e

t h e i r problems by s e l l i n g a s s e t s , i n c r e a s i n g deb t s , and l i q u i d a t i n g

i n v e n t o r i e s . Short- term, income-related measures of pover ty must t h u s be

designed t o account f o r t h e c a p a b i l i t y t h a t t h e economic u n i t ha s f o r

smoothing consumption by d i s s a v i n g o r borrowing. Thus measures of

r e s o u r c e s used t o de te rmine pove r ty should i nc lude some ad jus tments t o

allow f o r c a s h f l o w o t h e r t h a n income: d i e s a v i n g , borrowing and c a s h and

noncash t r a n s f e r s .

We d e f i n e a n economic cr is is t o o c c u r f o r 8 household ( t o k e n a s t h e

r e l e v a n t d e c i s i o n making group) when a d j u e t e d cash f low is i n s u f f i c i e n t

t o meet c u r r e n t c o s t s o f consumption. We e x p l o r e t h i s c o n c e p t and con-

s i d e r what t ime p e r i o d i s most a p p r o p r i a t e f o r d e f i n i n g economic c r i s e s

i n l i g h t o f t h e e x i s t i n g measurelnents i n t h e Survey o f Income and Program

P a r t i c i p a t i o n (SIPP). The d i s c u s s i o n o f how t o a d j u s t s h o r t - t e r m

m e a s u r e s t o i n c l u d e a s s e t s g o e s back t o 1959. David (1959) i n c l u d e s

l i q u i d a s s e t s i n a measure o f w e l f a r e ; Hansen and Welsbrod (1968) and

Bixby (1972) a n n u i t i z e w e a l t h t o a r r i v e a t augmented c a s h f low; S t e u e r l e

a n d McClung (1977) d i s c u s s a v a r i e t y of ways t o augment t h e income d e f i -

n i t i o n i n ' m e a s u r i n g p o v e r t y . Some results from t h e s e s t u d i e s a r e pre-

s e n t e d i n s e c t i o n 4.

We a p p r o a c h t h e problem of measur ing a c r i s i s i n two s t e p s :

a . We c o n s i d e r t h e m a t h e m a t i c a l problem of a g g r e g a t i n g r e s o u r c e s a n d p o v e r t y t h r e s h o l d s o v e r t ime.

b. We i n d i c a t e how i m p l e m e n t a t i o n o f t h e measures o n SIPP is. a f f e c t e d by t h e measurement, i m p u t a t i o n , and w e i g h t i n g p r o c e d u r e s i n c r o s s - s e c t i o n a l and l o n g i t u d i n a l samples.

3. TLME AGGREGATION OF POVERTY MEASURES

I n s t a n t a n e o u s c o n c e p t s

We d e f i n e a n i n s t a n t a n e o u s measure of CRISIS a s f o l l o w s :

a. z ( t ) i s a v e c t o r d e f i n i n g t h e s t r u c t u r e of the househo ld , i n c l u d i n g a g e , s e x and o t h e r c h a r a c t e r i s t i c s of members t h a t a r e r e l e v a n t t o t h e c o s t of t h e minimum s u s b s i s t e n c e consumption l e v e l , n ( z ) , f o r a n i n s t a n t o f t ime.

b. h (z ) e x t r a c t s houechold membership from z and the t o t o 1 income of t h e household a t any i n s t a n t of time is given by

where y ( i , t ) is the income flow f o r the i th i n d i v i d u a l a t the i n s t a n t t.

S i m i l a r l y , the sum of fung ib l e a s s e t s of the housel~old a t the i n s t a n t t

i s given by

c. CRISIS is def ined a s

where t he CI f u n c t i o n is an i n d i c a t o r whose va lue i s 1 i f the i n e q u a l i t y

i s t r u e and 0 otherwise . I n the same n o t a t i o n , the i n s t an t aneous o f f i c i a l

pover ty i n d i c a t o r is

Time agg rega t ion t o account ing per iods of l eng th T.

Aggregat ing the t o t a l need of households w i th which a p a r t i c u l a r

i n d i v i d u a l is a s s o c i a t e d f o r a per iod of time from 0 t o T is g iven by

(The square b racke t s w i l l be used to denote the time i n t e g r a l ) . S ince

t h e i n d i v i d u a l is a s s o c i a t e d w i t h only one household a t each p o i n t i n

time, t h i s sum is unique r e g a r d l e s s of changes i n household 8Fruc ture and

l i v i n g nrrangmcn ts.

Aggregation of incomes can be achieved i n the same m n n e r

The d e f i n i t i o n of c r i s i s can now be rev ised to i n d i c a t e p o t e n t i a l maximal

consump t i o n during the period

T h a t is, i f the t o t a l of fung ib l e a s s e t s a t the beginning of the period

p l u s income flows dur ing the period ending a t T is less than the c o s t of

a s u b s i s t e n c e l e v e l of consumption during t h a t per iod, the i n d i v i d u a l

w i l l be c l a s s i f i e d a s i n crisis. Note t h a t the resources and needs of

each household a r e represented i n the c a l c u l a t i o n i n p ropor t ion to the

t ime t h a t the i n d i v i d u a l i n ques t ion is a t r i s k i n ( i .e . a member o f )

t h a t household. The re fo re no double counting of needs o r income occurs.

The o f f i c i a l poverty r a t e over the i n t e r v a l [O,T] w i l l be -

I t is c l e a r t h a t OIIT] > CI[T].

2

One i s s u e r e q u i r e s conceptua l c l a r i f i c a t i o n : What p a r t of t o t a l weal th,

w(O), should be included i n fh(O)? C l e a r l y , many a s s e t s a r e not convcr-

t i b l c t o a s h a t an i n s t a n t i n time. However, the l onge r the period over

which they can be conver ted , the g r e a t e r the l i k e l i h o o d t h a t they can be

s o l d and t h a t they can be so ld a t a p r i c e near a " f a i r nu rke t value".

The not ion of " f a i r market value" is intended to convey a d i s t i n c t i o n

between l i q u i d and i l l i q u i d a s s e t s . We i nco rpora t e these i d e a s by

d e f i n i n g

where m(t) i s the propor t ion of wealth t h a t can be converted to a s h a t

e x a c t l y time t. M( t ) is the propor t ion of a s s e t s t h a t have cumula t i v c l y

been converted t o cash a t time t,

Equat ion (7) is now r e s t a t e d

where the fh[O,T] is used t o connote the maximum of weal th t h a t could be

l i q u i d a t e d a t " f a i r market value" in the i n t e r v a l [O,T]. C l e a r l y fh[O,T]

v a r i e s over i n d i v i d u a l s ; m(t) v a r i e s a s the composition of t h e i r weal th

v a r i e s ; and the total f u n g i b l e weal th w i l l vary with the l e v e l of- w(0).

4. PAST EMPIRICAL RESULTS ON POVERTY AND WEALTH

S e v e r a l s t u d i e s have ind ica t ed the importance of weal th hold ings I *

among those c l a s s i f i e d a s poor on an income bas is . We p r e s e n t t a b l e s

from three such s t u d i e s . 'David (1959) uses da ta from the 1956 Survey of

Consumer Finances to c o n s t r u c t Table 1. On l i n e 1 the n e t index compares

a measure of income based on d i sposab le income plus home grown food p l u s

imputed home r e n t to the c o s t of a bundle of b s i c needs. The gross

index adds l i q u i d a s s e t s to the income above and compares t h i s to the

same needs s tandnrd. The indcx of poverty t h a t i nc ludes l i q u i d o s a c t s i s

23 percent lower. David f u r t h e r shows the s i z e of m i ~ t a k e e (20 pe rcen t )

t h n t r e s u l t form uoinpl only d i sposab le income to c l a s s i f y persons, when

t h e gross .,index is as~umed to be the t r u e index of welfare .

Iinnsen and Ueisbrod (1968) match a s s e t da ta from the Survey of

F i n a n c i a l C h a r a c t e r i s t i c s of Consumers (1962) to da t a from the 1962

Cuurent Popula t ion Survey. They compute a measure of resources which

inc ludes income and the annu i ty va lue of n e t worth. A s shown in Table 2;

i f the poverty threshold is taken to be a resource l e v e l of $3000 per

fami ly , the number of poor d e c l i n e s from 20 percent to 17 percent when

t h e annui ty va lue of n e t worth is included.

S t e u e r l e and Picclung (1977) p re sen t s e v e r a l measures of household

r e sou rces and inc lude weal th i n d i f f e r e n t ways. T h e i r d a t a is from the

1966 Survey of Economic Opportuni ty . The f i v e resource def i n i t i o n s used

i n Table 3 a re : (1 ) Income: 1966 t o t a l nonass i s t ance family CPS income,

p l u s lump sum income; (2 ) Income/Liquid Assets : Income (1) p lus l i q u i d

assets; ( 3 ) Income/Net Worth: Income (1) plus a s s e t s , minus debt , l e s s

one ha l f money income from a s s e t s ; (4) Income/Fraction of Net Worth:

Income (1) p lus 10 percent of n e t worth, l e s s income from a s s e t s ; ( 5 )

Income/Annuity: Income (1) p lus annu i ty va lue of n e t worth, l e s s income

from a s s e t s . The t a b l e shows t h a t weal th can have a s u b s t a n t i a l impact-

i n c l u s i o n of l i q u i d a s s e t s lowers the poverty r a t e by 18 percent , inclu-

s i o n of n e t worth lowers the poverty r a t e by 41 percent .

These s t u d i e s show the importance of weal th ad jus tments on an annual

b a s i s ; we can expec t l a r g e r e f f e c t s on a s h o r t e r account ing period.

5 . ' CONCEI'TUAL, NWANTAGES OF C I [TI AND niE RELATIONSIIIP BETWEEN C I [TI AND 01 [TI

In some small i n t e r v a l s of time, it is q u i t e poss ib l e t h a t yh[T] - 0.

Between pay pe r iods w n y workers have no sources of cash flow. Se l f -

employed with i n t e r m i t t e n t r e c e i p t s a l s o w i l l have per iods of zero a s h

flow. In t h a t case , the a f f e c t e d family w i l l be c l a s s i f i e d a s poor

accordf n.g to the 01 IT], even though adequate l i q u i d a s s e ts a r e a v a i l a b l e .

The p r o b a b i l i t y of t h i s e v e n t u a l i t y decreases a s the accounting period

lengthens. Only self-employed a r e l i k e l y no t to r ece ive some income

payments on a schedule of one m n t h o r l e s s .

A second obse rva t ion is t h a t rnos t ' households w i l l maintain s u f f i c i e n t

f u n g i b l e a s s e t s to meet the " t r a n s a c t i o n needs" of the i n t e r v a l between

income r e c e i p t s . Thus fh[O,O] w i l l be a t a minimum j u s t before the

r e c e i p t of r e c u r r e n t income flows. Th i s behavior is independent of the

account ing period.

I n any case, t ak ing the cash on hand a t tile beginning of the period

as f ixed and cons ide r ing s u c c e s s i v l y longe r per iod f o r the r e c e i p t of

income gives the fo l lowing r e l a t i o n s h i p

T h a t is, we would expec t the same r a t e of i nc rease of income using both

measures, i f the measure of fung ib l e a s s e t s is f ixed a t cash and near

ca sh a s of the beginning of the period. When inc reases i n f u n g i b i l i t y of

a s s e t s a r e cons idered , the r a t e of i n c r e a s e ind ica t ed by the broader

measure must r i s e m r e qu ick ly than yh[T] with inc reas ing T over some

i n t e r v a l 0 < T < A

Because the rate of i nc rease of n[T] is i d e n t i c a l f o r both 01 IT] and

C I ~ T ] , e q u a t i o n (12) impl ies t h a t poverty r a t e s using the broader measure

w i l l i n i t i a l l y f a l l f a s t e r than OI['r] a s d ~ e accounting period i s

lengthened.

Up t i l l now we have only considered the resources a v a i l a b l e t o the

household from the s a l e of n e t worth. Borrowing a g a i n s t n e t worth would

cause l i t t l e change i n the m a s u r e , except t h a t the c o s t of i n t e r e s t pro-

bably should be added to n [ ~ ] . Borrowing would c l e a r l y be d e s i r a b l e i n

t hose i n s t a n c e s where a s s e t s a r e . rtiquired f o r income-earning (1. e. t o o l s

of the self-employed, automobiles requi red f o r t r a n s p o r t t o work, e t c . ) . The m r e impor tan t form of borrowing is b r r o w i n g a g a i n s t . f u t u r e

e a r n i n g capac i ty . T h i s occurs when consumers borrow on t h e i r c r e d i t

c a r d s , d e f a u l t on mortgage loan payments, and take o u t personal loans. . .

Informat ion on the capac i ty of the household to i n c u r such deb t s should

be included i n the broader measure of poverty, S ince none of t h i s in for -

mation 1s a v a i l a b l e i n the SIPP core d a t a , we s h a l l n o t be labor the

po in t .

6 . MEASUREHENT ISSUES USING SIPP

The Survey of Income and Program P a r t i c i p a t i o n (SIPP) is a n a t i o n a l l y

r e p r e s e n t a t i v e sample of the n o n i n s t i t u t i o n a l i z e d U.S. populat ion. I t

inc ludes monthly da t a on income, program p a r t i c i p a t i o n and demographics

f o r over 20,000 U.S. households. A household is interviewed every four

m ~ n t l l s , and t h e s c d a t a ore o r g a n i z e d i n t o f o u r month p i e c e s c a l l e d waves.

Due t o a s t a g g e r e d s y s t e m o f i n t e r v i e w i n g , o n e q u a r t e r of t h e aample

households a r e i n t e r v i e w e d i n e a c h c a l e n d a r month, and t h u s o wave

i n c l u d e s a n o v e r l a p p i n g mix o f c a l e n d n r months f o r t h e f o u r sample

g r o u p s . , Our l o n g i t u d i n a l sample t i m e p e r i o d c o r r e s p o n d s rough ly t o calendar

1984: f o r o n c q u a r t e r of t h e sample i t i s October 1983 t o Scptcmber

1984, f o r t h e second q u a r t e r i t is November 1983 t o Oc tober 1984 , and s o

on. We i n c l u d e p e r s o n s i n l ~ o u s e h o l d s c o n t i n u o u s l y p r e s e n t f o r t h e f i r s t

f o u r i n t e r v i e w s ; t h u s w e f o l l o w o n l y p e r s o n s who wcr-e p a r t of t h e

n a t i o n a l l y r e p r e s e n t a t i v e sample. To guard a g a i n s t p o t e n t i a l b i a s i n

p o v e r t y and cr is is r a t e s d u e t o d i f f e r e n t i a l sample a t t r i t i o n , we c a l c u -

l a t e d a n d - u s e a s y s t e m o f l o n g i t u d i n a l sample w e i g h t s t h a t a d j u s t f o r

d i f f e r e n t i a l p r o b a b i l i t i e s o f i n c l u s i o n i n o u r l o n g i t u d i n a l sample.

David and F i t z g e r a l d (1987) d e s c r i b e s t h i s p r o c e d u r e i n d e t a i l . Our

l o n g i t u d i n a l sample i n c l u d e s 44,639 p e r s o n s .

We a l s o p r e s e n t some r e s u l t s based on t h e t h i r d wave i n t e r v i e w . T h i s

c r o s s - s e c t i o n i s l a r g e r (48,357 p e r s o n s ) s i n c e we do no t r e q u i r e con-

t i n u o u s p r e s e n c e i n t h e sample f o r f o u r i n t e r v i e w s . (We do r e q u i r e t h a t

t h e p e r s o n i s p a r t of t h e r e p r e s e n t a t i v e sample , i.e., was p r e s e n t a t t h e

f i r s t wave i n t e r v i e w . )

The wave 3 s a m p l e i n c r e a s e s p r e c i s i o n o f e s t i m a t e s f o r small g roups .

It a l s o i s s u b j e c t t o less p o t e n t i a l b i a s from a t t r i t i o n . Most impor-

t a n t l y , i m p u t a t i o n f o r m i s s i n g d a t a i s c o n s i s t e n t f o r each i n d i v i d u a l .

The wave 3 s a m p l e i n c o r p o r a t e s t h e dynamics o f changing household com-

p o s i t i o n , a n d d i f f e r s f rom t h e C u r r e n t P o p u l a t i o n Survey (CPS) and t h e

f i . r s t wave of SIPP i n t h a t regard. Thc t ime per iod f o r t h i s snmplc i s

c e n t e r e d a t b y t o June 1984. We use t h e same method a s ahovc t o dcvclop

samplc weights f o r t h i s c ros s - sec t ion .

The S I P P u s e s a n impu ta t i on procedure t o s imu la t e va lues f o r miss ing

d a t a . Data i s imputed c r o s s - s e c t i o n a l l y , i . e . , wi thout r e f e r e n c e t o a

p e r s o n ' s d a t a i n o t h e r waves, and thus poses some problem f o r our longi -

t u d i n a l work. We e l e c t e d t o use t h e imputed d a t a and recognize t h a t tile

impu ta t i ons add v a r i a n c e t o l o n g i t u d i n a l income t o t a l s . For example,

i m p u t a t i o n o r a miss ing r e p o r t of i n t e r e s t income does no t make use of

t h e l e v e l of i n t e r e s t r epo r t ed a t a n o t h e r interview. . By our sample

i n c l u s i o n c r i t e r i a , we have excluded pe r sons wi th f u l l y imputed records .l

To u s e l o n g i t u d i n a l d a t a we must d e a l with changes i n household com-

pos t ion . -The f o u r month r e f e r e n c e pe r iod of SIPP a l l o w s c l o s e t r a c k i n g

of household composi t ion changes and income changes; t h i s i s c l e a r l y an

advantage ove r surveys such a s t h e CPS. Our r e s u l t s t a b u l a t e i n d i v i d u a l s

i n households. Each i n d i v i d u a l is c l a s s i f i e d accord ing t o t h e time-

weighted ave rages of income and pover ty t h r e s h o l d s t h a t app ly t o t h e

households i n which those i n d i v i d u a l s l i v e d du r ing t h e 12-month year .

For example, a n i n d i v i d u a l spends 6 months i n a household wi th $7,000 of

income and a pover ty t h r e s h o l d o f $5000 du r ing those s i x months; s h e

spends t h e remainder of t h e y e a r i n a s e p a r a t e household wi th $500 income

and a pover ty t h r e s h o l d of $3000. The i n d i v i d u a l w i l l :hen be a t t r i b u t e d

a s t a t u s of pover ty f o r t h e 12-month pe r iod -- t h e cumula t ive $7500 of

income wi th which t h a t person i s a s s o c i a t e d du r ing t h e y e a r i s less than

t h e cumula t ive $8000 of pove r ty t h r e s h o l d s .

A c r u c i a l p o r t o f o u r s t u d y i s t h c mensurcrncnt of f u n g i b l e a s s c t s n t

t h e beg inn ing o f t h e a c c o u n t i n g p e r i o d , f h ( 0 ) . T h i s d a t a is n o t d i r e c t l y

r e p o r t e d i n S I P P e a c h wave. Thus we c o n s t r u c t a n a s s e t b a l a n c e measure

based on income f lows from t h e a s s e t s . R ~ C R U S C we a r e i n t e r e s t e d i n

a s s e t s h e l d a t t h c b e g i n n i n g o f t h e a c c o u n t i n g p e r i o d , we b a s e our

measure on a s s e t income f l o w s from t h e p r i o r pe r iod .

Our pr imary f o c u s i s on l i q u i d a s s c t s which c a n be c o n v e r t e d t o c a s h

( t h e n consumption) o v e r a s h o r t p e r i o d of t ime. For t h i s purpose we

measure l i q u i d a s s e t s a s t h e c a p i t a l i z e d v a l u e of i n t e r e s t income (income

f rom s a v i n g s a c c o u n t s , bonds , money market funds) . We l a te r show t h a t

o u r crisis measure would n o t be s e n s i t i v e t o t h e i n c l u s i o n o f a l l pro-

p e r t y income a s s e t s r e g a r d l e s s o f t h e i r l i q u i d i t y .

F o r a l a r g e p a r t o f t h e sample t h e i n t e & s t r e p o r t e d i n SIPP was

imputed by t h e Bureau o f t h e Census based on t h e a s s e t b a l a n c e s r e p o r t e d .

F o r t h e s e p e r s o n s , c a p i t a l i z i n g t h e i n t e r e s t income a t t h e i n t e r e s t r a t e

used by t h e Census ( 6 p e r c e n t ) r e c o v e r s t h e account b a l a n c e s . For t h e

rest o f t h e sample a n i n t e r e s t rate must be assumed, and we c h o s e t o u s e

t h e same 6 p e r c e n t rate. The i n t e r e s t income amount is c o l l e c t e d by t h e

Census as a f o u r month a g g r e g a t e . Thus we do n o t have monthly i n t e r e s t

income amounts and c a n n o t c a l c u l a t e monthly ba lances . We t h e r e f o r e pre-

s e n t crisis measures f o r o n l y t h e f i r s t month o f a wave, and e s t i m a t e

c a s h a s s e t s from i n t e r e s t amounts p a i d d u r i n g t h e p r i o r wave. 2

The c r i s i s measure i s o b t a i n e d by a d d i n g t h e e s t i m a t e d v a l u e of

a s s e t s t o t h e income r e c o r d e d f o r t h e househo ld wi th which t h e i n d i v i d u a l

was a s s o c i a t e d i n t h e f i r s t month o f t h e p e r i o d . Tha t is , i f t h r e e per-

s o n s , mother , f a t h e r , and d a u g h t e r , were i n t h e household f o r t h e f i r s t

s i x months and t h c daugh te r e s t a b l i s h e d s e p a r a t e housekeeping t h e r e a f t e r ,

t h e cr is is measure r e q u i r e s t h c fo l l uwi2&lcu ln t ion : ..--

.*:.

1. The a s s e t income of each person i n t h e f o u r months p r i o r t o t h c beginning of t h e per iod is c a l c u l a t e d by summing i n t e r e s t on cash i ,n banks, s av ings accoun t s , and motley market mutual funds ( a s s e t t y p e s 100-104). (Income rece ived from a s s e t s t h a t a r e j o i n t l y owned is a l l o c a t e d t o each person involved.)

2 . The a s s e t income i s c a p i t a l i z e d at a 6 pe rcen t r a t e of annual i n t e r e s t . The c a p i t a l anount i s t h e r e f o r e 50 t imes t h e r epo r t ed i n t e r e s t f o r t h e p r i o r four-month

3. The c a p i t a l amounts a r e aggrega ted accord ing t o household s t r u c - t u r e a t t h e beginning of t h e per iod f o r which t h e c r i s i s measure i s c a l c u l a t e d . I n our example, t h i s i s t h e mother, f a t h e r and daughter .

The l o g i c behind t h i s procedure is t h a t t h e i n i t i a l household is a n eco-

nomic decision-making group and t h a t t h e d e c i s i o n t o a l t e r t h a t g roup i s

made i n r e l a t i o n t o what t h e members know about t h e i n i t i a l asset posi-

t i o n of t h e group a s a whole. Subsequent changes i n household c o w

p o s i t i o n a r e endogenous t o t h e ba lance s h e e t a t t h e beginning of t h e

measurement per iod .

7. POVERTY AND CRISIS LEVELS

We beg in our p r e s e n t a t i o n of r e s u l t s by i l l u s t r a t i n g t h e e f f e c t of

s h o r t e n i n g t h e accoun t ing pe r iod on measures of pove r ty and crisis.

Using t h e l o n g i t u d i n a l sample, w e c o n s t r u c t measures f o r t h r e e account ing

pe r iods : twelve month, f o u r months (one wave), and one month ( t h e f i r s t

month of a wave). The twelve months of d a t a i n t h e l o n g i t u d i n a l sample

g e n e r a t e 1 12 lnon th measure ( l o o s e l y 1984) , 3 c o n s e c u t i v e 4-month

measures t h a t use t h e same d a t a , and 3 1-month measures t h a t a r e based on

t h e f i r s t , f i f t h and n i n t h month i n t h e 12-month per iod. Tab le 4 p re -

s e n t s t h e r e s u l t s . The four- and one-month measures a r e ave rages o f t he

t h r e e measures ob t a ined w i t h i n t h e 1984 yea r .

A s t he . accounti.ng per iod becomes s h o r t e r t h e pover ty measure indL-

c a t e s a s u b s t a n t i a l r i s e i n t h e number of persons c l a s s i f i e d as F o r . On

a one month b a s i s , 14 p e r c e n t of t h e popu la t i on is poor--a f i g u r e 24 pcr-

c e n t l a r g e r than t h e annual pover ty r a t e . Annual pover ty r a t e s do not

d e t e c t a l a r g e number of persons who exper ience temporary income s h o r t -

f a l l s . These f i g u r e s a r e comparable t o Williams (1986). who u s e s a

s l i g h t l y d i f f e r e n t sample and unweighted e s t ima te s . ?'he crisis measure

rises by much less as we s h o r t e n t h e account ing pe r iod , and even f a l l s

s l i g h t l y between t h e one and f o u r month measure. T h i s i s because a g i v e n

amount of a s s e t s i n c r e a s e s i n importance r e l a t i v e t o income a s t h e

account ing pe r iod g e t s s h o r t e r .

We f u r t h e r compare pove r ty and crisis measures i n Tab le 5 . The d i f -

f e r e n c e between t h e measures shows t h e r e d u c t i o n i n measured pover fy t h a t

o c c u r s when we exc lude persons whose l i q u i d a s s e t s high enough f o r t h e i r

consumption t o remain above t h e pove r ty l i n e du r ing t h e account ing

pe r iod . More s imply , t a k i n g t h e crisis measure a s a more a c c u r a t e

measure of ha rdsh ip , t h i s d i f f e r e n c e shows t h e persons m i s c l a s s i f i e d a s

i n ha rdsh ip by i g n o r i n g assets. Note t h a t a s t h e account ing pe r iod shor-

t e n s t h e crisis measure s c r e e n s o u t a n i n c r e a s i n g p ropor t i on of persons

who are s o m i s c l a s s i f i e d . On average 21 p e r c e n t of t h e one month poor

a r e m i s c l a s s i f i e d .

Tab le 5 a l s o shows t h e v a r i a b i l i t y and t r end i n t h e measures th rough

c a l e n d a r 1984. Both t h e pove r ty and crisis r a t i o f a l l through t h e year .

I n appendix Tob lc A 1 w e show t h c j o i n t d i s t r i b u t i o n of t h e cr is is and

pove r ty measures and t h e means of l i q u i d a s s e t s w i t h i n t h a t d i e t r i b u t i o n .

Thc t a b l e shows t h a t some persons c l a s s i f i e d ns poor by t h e o f f i c i a l

measure hold s u b s t a n t i a l q u a n t i t i e s of l i q u i d a s s e t s .

To sufamarize, a s t h e accoun t ing pe r iod becomes s h o r t e r t h e p v e r t y

measure c l a s s i f i e s a n i n c r e a s i n g number of persons a s poor due t o income

v a r i a b i l i t y ( temporary s h o r t f a l l s ) . The c r i s i s measure s c r e e n s ou t

i n c r e a s i n g numbers wi th a s s e t cush ions s u f f i c i e n t t o con t inue pover ty

l i n e consumption l e v e l s . The n e t r e s u l t is t h a t t h e one month c r i s i s

measure i s only s i x pe rcen t above i t s annual l e v e l , even though t h e one

month pover ty measure i s 24 p e r c e n t above i ts annua l l e v e l .

8. POVERTY AND CRISIS TRAhlSITIONS

A number of w r i t e r s have s t r e s s e d t h e l a r g e t u rnove r of t h e pover ty

popu la t i on - -pa r t i cu l a r ly ove r s h o r t p e r i o d s (e.g., Wil l iams 1986, Ruggles

and Wil l iams, 1987). Accept ing t h a t t h e o f f i c i a l pove r ty measure

o v e r s t a t e s t h e s h o r t term l e v e l of h a r d s h i p by i g n o r i n g a s s e t s , w e nex t

a s k t h e e x t e n t t o which t r a n s i t i o n s i n o r o u t of pove r ty a r e ove r s t a t ed .

T h a t is , t o what e x t e n t do t h o s e expe r i enc ing t r a n s i t i o n s i n o r ou t of

p o v e r t y have enough assets t h a t t hey never were i n ha rdsh ip accord ing t o

t h e crisis measure? How w e l l c a n t h o s e e x p e r i e n c i n g s h o r t term income

f l u c t u a t i o n s t h a t cause pove r ty t r a n s i t i o n s cush ion t h e i r impact wi th

a s s e t s ?

T a b l e 6 a d d r e s s e s t h e s e q u e s t i o n s by look ing a t two per iod t ran-

s i t i o n s i n t o o r o u t of pove r ty and crisis. The one-month t r a n s i t i o n s

show s t a t u s i n one month compared w i t h a month f o u r months l a t e r . The

four-month t r a n s i t i o n s show changes between consecu t ive four-month

measures. (Thus t h e c n l c n d a r tCme changes o r e compnrablc between t h c one

and four-month t r a n s i t lone.) Cons ider t h e one-month t r a n s i t i o n s i n

column 2 of Table 6. Of t hose measured a s c n t c r i n g pover ty (e.g., n o t

p o o r . i n month 1 b u t p o o r i n month 5 ) , almost 40 p e r c e n t never experienced

a c r i s i s - - i e . had a s s e t s enought t o f i nance consumption above t h e

pover ty l i n e i n both months. Of t hose measured a s e x i t i n g pover ty on a

monthly b a s i s , n e a r l y 40 p e r c e n t never experienced a c r i s i s . Of t h o s e

who were i n poverty f o r both months ( l a b e l l e d always poor ) , 1 7 pe rcen t

escaped a c r i s i s i n one o r t h e o t h e r of t h e months.

C l e a r l y , t h e monthly pover ty measure s u b s t a n t i a l l y o v e r s t a t e s t h e

f requency o f t r a n s i t i o n s . The m o b i l i t y of t hose t r u l y i n ha rdsh ip , a s

measured by t h e cr is is measure, i s much lower. A l t e r n a t i v e l y , t h o s e who

make poverty t r a n s i t i o n s o f t e n do have a s s e t cushions. We show below,

however, t h a t t h e r e i s a b i g d i f f e r e n c e a c r o s s demographic groups i n t h e

a b i l i t y t o cush ion a s h o r t f a l l . The four-month measures t e l l a s i m i l a r

s t o r y , but t h e averag ing i m p l i c i t i n t h e four-month measures lowers t h e

magnitudes of t h e d i f f e r e n c e betwee'n t h e pover ty and cr is is measures.

Another w a y of viewing t r a n s i t i o n s i s t o look a t t h e t h r e e 4-month

p e r i o d s w i t h i n t h e 1984 y e a r a s a t h r e e pe r iod h i s t o r y . T a b l e 6-A shows

t h a t t h e p r o p o r t i o n o f pe r sons measured a s i n cr is is f o r t h r e e con-

s e c u t i v e per iods ' (Always) i s a l i t t l e over two-thirds of t h e annual r a t e ;

t h e comparable pover ty number i s s l i g h t l y h igher . From row 2(a) and (b)

w e f i n d t h a t 16 p e r c e n t o f t h e popu la t i on had a l e a s t one 4 month pe r iod

o f crisis, a p r o p o r t i o n 55 p e r c e n t h i g h e r t han t h e annual r a t e (row

3 (b ) ) . The comparable f i g u r e f o r "ever poor" is 70 p e r c e n t above i t s

annua l r a t e . The cr is is measure shows less o c c a s i o n a l hardsh ip : t h e

p r o p o r t i o n tloving one o r two pe r iods of hardehtp du r ing t h c y e a r (row

2 ( b ) ) i s 1 9 p e r c e n t lower f o r t h e c r i s i s measure t han t h c povcrty

measure.

9 . ALTERNATIVE ASSET MEASURES

Before t u r n i n g t o d i f f e r e n c e s i n t h e r~ieasures i n s p e c i f i c sub-

popu la t i ons , w e a d d r e s s t h e s e n s i t i v i t y of our c r i s i s measure t o an

a l t e r n a t i v e a s s e t d e f i n i t i o n . We have concent ra ted on l i q u i d a s s e t s

measured by c a p i t a l i z e d i n t e r e s t income flows. Another n a t u r a l a s s e t

measure is t h e c a p i t a l i z e d va lue of a l l p rope r ty income f lows. Th i s

would add income from s t o c k s and r e n t a l p rope r ty t o our measure. These

t y p e s of a s s e t s a r e expected t o have a l a r g e 5 v a r i a n c e i n r e t u r n s and be

less l i q u i d . Owner occupied housing and consumer d u r a b l e s do not

. . g e n e r a t e p rope r ty income, and a r e t hus excluded. S ince our concern is

w i t h f i n a n c i n g s h o r t term consumption t h i s e x c l u s i o n seems r ea sonab le ,

a l t hough i t i g n o r e s t h e p o t e n t i a l t o borrow a g a i n s t t h e s e a s s e t s .

T a b l e 7 shows t h a t t h e popu la t i on of persons expe r i enc ing a fou r

month cr is is r e c e i v e s very l i t t l e p rope r ty income t h a t is n o t i n t e r e s t .

To make t h i s comparison we a g a i n used a 6 p e r c e n t r a t e t o c a p i t a l i z e a l l

p r o p e r t y income i n exces s o f i n t e r e s t income. To t h e e x t e n t t h a t t h e 6

p e r c e n t rate u n d e r s t a t e s t h e r e t u r n a v a i l a b l e on t h e s e a s s e t s , our capi-

t a l i z a t i o n o v e r s t a t e s t h e v a l u e of t h e s e a s s e t s . The t a b l e shows t h a t 9 4

p e r c e n t of t h o s e i n crisis r e c e i v e no n o n i n t e r e s t p rope r ty income. If we

were t o i n c l u d e a l l p r o p e r t y income a s s e t s i n our crisis measure, and

assume t h a t anyone who r e c e i v e s even one d o l l a r of n o n i n t e r e s t p r o p e r t y

income i s moved ou t of c r i s i s , t h e n our c r i s i s measure would f a l l by 6

pe rcen t . For t h e ave rage f o u r rnontl~ nensure t h i s would be n change from

11.3 p e r c e n t t o 10.6 p e r c e n t , i n c r e a s i n g d i f f e r e n c e s between t h e c r i s i s

and pover ty measures ( s c c Tab le 4 ) . (The nega t ive p r o p c r t y income c a s e s

shown i n t h e t a b l e a r e most l i k e l y weal thy persons t a k i n g p r o p e r t y income

( e.g . r e n t a l ) l o s s e s .)

10. SIGNIFICANT DEMOGRAPIIIC REJATIONSIIIPS

We sugges ted above t h a t t h e cr is is measure can change our p e r c e p t i o n

o f t h e number of persons i n ha rdsh ip i n t h e s h o r t run. In t h i s s e c t i o n w e

a s k how our p e r c e p t i o n s change abou t t h e d i s t r i b u t i o n of ha rdsh ip a c r o s s

demographic groups, We proceed by c a l c u l a t i n g t he d i f f e r e n c e between t h e

pove r ty and crisis measures f o r v a r i o u s demographic groups a s a percen-

t a g e of t h e pove r ty measure. Persons i n groups t h a t show l a r g e d i f f e r e n -

ces a te mire l i k e l y t o have s i g n i f i c a n t l i q u i d a s s e t s , and t h u s tend t o

be m i s c l a s s i f i e d by t h e pover ty measure ove r a s h o r t account ing per iod .

T a b l e 8 shows t h e d i s t r i b u t i o n of t h e 4 month measure, f o r t h e wave 3

sample, c l a s s i f f e d by household s t r u c t u r e . Sf nce a household c a n ' i n c l u d e

n o n r e l a t e d i n d i v i d u a l s , we s e p a r a t e l y c l a s s i f y households t h a t i n c l u d e

such persons. The household i s c l a s s i f i e d by t h e m a r i t a l s t a t u s o f t h e

household r e f e r e n c e person, d e s i g n a t e d by t h e Census Bureau, a t t h e

beginning of t h e S IPP sample panel . Changes i n s t a t u s a r e no t r e f l e c t e d

here . Both t h e p o v e r t y measure and t h e crisis measure show t h a t nonwhi-

t e s a r e roughly t h r e e t imes more l i k e l y t o be poor o r i n - r i s i s t han whi-

tes. A s expected, s ingle-headed households w i th c h i l d r e n are most l i k e l y

t o have ha rdsh ip , w h i l e marr ied-couple households wi thout c h i l d r e n are

l e a s t 1 i k e l y . I n g e n e r a l , t h e d i f f e r e n c e between t h e pover ty and c r i s i s measure is

l a r g e r f o r w h i t e s , p a r t i c u l a r l y f o r t h o s e households wi thout c h i l d r e n .

T h e s e househo lda a p p a r e n t l y a r e more a b l e t o a c c u m u l ~ t r n s e e t s . The

m e a s u r e s show s m a l l e r d i f f c r e n c e a f o r nonwhites-- l iquid a s s e t b a l a n c e s

o f f e r l i t t l e c u s l ~ i o n when incomes f a l l below t h e p o v e r t y s t a n d a r d .

S ing le -headed h o u s e h o l d s w i t h c h i l d r e n show s m a l l d i f f e r e n c e s between t h e

m e a s u r e s f o r bo th w h i t e s and nonwhites . Converse ly , a v a i l a b i l i t y of

a s s e t s makes w h i t e h o u s e h o l d s w i t h o u t c h i l d r e n l e s s l i k e l y t o have a c r i -

s is. Pane l B shows househo lds t h a t i n c l u d e n o n r e l a t i v e s . The s i n g l e

head c a t e g o r i e s may i n c l u d e c o n s e n s u a l u n i o n s n o t r ecorded a s m a r r i a g e s .

by t h e Census Bureau. The r e s u l t s are q u a l i t a t i v e l y s i m i l a r t o t h o s e f o r

h o u s e h o l d s o f r e l a t e d i n d i v i d u a l s , b u t t h e magni tudes a r e s m a l l e r .

To d e s c r i b e t h e d i s t r i b u t i o n o f t h e measures f u r t h e r , T a b l e 9 classi-

f i e s p e r s o n s by a g e and gender. The t a b l e shows t h a t c h i l d r e n have t h e

h i g h e s t i n c i d e n c e o f p o v e r t y and crisis. The most s t r i k i n g f e a t u r e o f

t h e t a b l e i s t h e d i f f e r e n c e between t h e two measures f o r e l d e r l y women.

T h e s e women, many o f whom are l i k e l y t o be widows, seem t o h o l d s i z a b l e

q u a n t i t i e s o f l i q u i d a s s e t s .

We stress care i n i n t e r p r e t i n g t h e r e s u l t s f o r t h e e l d e r l y . Cash i n

s a v i n g s a c c o u n t s may r e p r e s e n t t h e s o u r c e o f a s i g n i f i c a n t p a r t of t o t a l

income. A l s o t h e s e h o u s e h o l d s are n o t l i k e l y t o r e a l i z e income from

e a r n i n g s . As a consequence i t may b e more r e a s o n a b l e t o coun t a s s e t s o f

t h e aged o n t h e a n n u i t i z e d b a s i s t h a t was used by Iiansen and Weisbrod

(1968) and Bixby e t a l . (1975). Having c a u t i o n e d a g a i n s t t o o r i g i d a n

i n t e r p r e t a t i o n o f t h e crisis measure , we must r e i t e r a t e t h a t t h e r e s u l t s

h e r e s u p p o r t t h e work o f Danz iger e t a l . (1984) , which i n d i c a t e s t h a t

d e p r i v a t i o n o f t h e aged t e n d s t o be o v e r s t a t e d by income measures a s c o n r

p a r e d t o consumption. The c r i s i s measure r e p r e s e n t s a rough a d j u s t m e n t

t o u n d e r s t a n d t h e n a t u r e o f t h i s o v e r s t a t e m e n t .

How do human c a p i t a l l e v e l s a f f e c t t h e a b i l i t y t o accumulate a s s c t s

and avoid short- term c r i s e s ? Tab le 10 categorizes persons ove r t h e a g e

o f 15 by h i g h e s t g rndc completed and race. The d i f f c r c n c c bctwecn t h e

pove r ty and c r i s i s measure shows t h a t t hose wi th h ighc r e d u c a t i o n a l

l e v c l s have accumulated more l i q u i d a s s e t s . Impor tan t ly , t h i s i s t r u e

f o r both wlii tes and nonwhites. Neve r the l e s s , t h e most educated nonwhites

have accumulated on ly s l i g h t l y more a s s e t s ( i n r e l a t i o n t o t h c i r pover ty

budgct ) t han t h e l e a s t educated whites . Thus educa t ion l e v e l s a lone do

n o t e x p l a i n r a c i a l d i f f e r e n c e s .

We e a r l i e r s t r e s s e d t h e s u b s t a n t i a l overs ta tement of pover ty t ran-

s i t i o n s by t h e o f f i c i a l pove r ty measure. T h i s overs ta tement v a r i e s dra -

m a t i c a l l y by demographic group a s i s s e e n i n Tab le 11. For nonwhites and

s i n g l e head households w i t h c h i l d r e n t h e occurance of " f a l s e " t r a n s i t i o n s

(measured pover ty t r a n s i t i o n by a persons never i n c r i s i s ) is much

s m a l l e r t han f o r o t h e r groups. For t h e e l d e r l y and marr ied head house-

h o l d s wi thout c h i l d r e n ove r h a l f of t h o s e measured a s e n t e r i n g pover ty

e x p e r i e n c e no cr is is , and s l i g h l t y under h a l f of t hose measured a s

l e a v i n g pover ty were i n i t i a l l y i n a crisis.. For t h e s e groups t h e mobil-

i t y i n o r out of h a r d s h i p i s d r a m a t i c a l l y o v e r s t a t e d by t h e pover ty

measure. I n g e n e r a l , households wi thout c h i l d r e n show l a r g e p r o p o r t i o n s

o f " f a l s e " pove r ty t r a n s i t i o n s . The t a b l e a l s o shows t h a t m o b i l i t y i s

q u i t e r e s t r i c t e d f o r some groups, no t ab ly s i n g l e heads wi th c h i l d r e n .

While 8.8 p e r c e n t of t h e t o t a l popu la t i on exper ienced a crisis i n both

f o u r month p e r i o d s , 36.2 of t h e s i n g l e head wi th c h i l d r e n group had two

consecu t ive p e r i o d s of crisis.

11. TARGET EFFICIENCY, TIlE ACCOUNTING 17ERIOD, AND MEASURE OF IWRDSIIIP

One way t o e v a l u a t e t h e c r i s i s measure of ha rdsh ip is t o a s k wticther

i t i n c r e a s e s ou r unders tanding of s o c i a l p o l i c y i n comparison t o t h e

pove r ty measurc. We.attempt t h i s e v a l u a t i o n by s tudy ing t h e d i s t r i b u t i o n

o f b e n e f i t s under means-tested t r a n s f e r programs. Two norinative c r i t e r i a

a i d i n t h i s e v a l u a t i o n :

A . I n a d e s i r a b l e program t h e p r o b a b i l i t y of r e c e i v i n g b e n e f i t s should r i s e i n p ropor t i on t o t h e measure of hardsh ip .

B. The expected b e n e f i t from t h e program should i n c r e a s e a s t h e measure of ha rdsh ip i n c r e a s e s .

(We recogn ize t h a t t a r g e t e f f i c i e n c y measures do not measure economic

eff f i c i e n c y (see Sadka, Garf i n k e l , and Noreland, 1982), b u t t h e y o f f e r a

b a s i s f o r i n t e l l i g e n t program design.)

The f i r s t c r i t e r i o n mo t iva t e s a p r e s e n t a t i o n of t h e p r o p o r t i o n of

t h e popu. la t ion t h a t i s served by a means t e s t e d program i n r e l a t i o n t o

t h e p r e w e l f a r e crisis r a t i o (i.e market income, t r a n s f e r s o t h e r &an

means t e s t e d t r a n s f e r s , and ca sh a s s e t s d iv ided by t h e pove r ty

t h r e s h o l d ) . We p r e s e n t t a b u l a t i o n s based on t h e Wave 3 c r o s s s e c t i o n ,

u s i n g t h e f o u r month pover ty and crisis measures , because o f t h e con-

s i s t e n c y o f impu ta t i ons and t h e i n t e g r i t y of a s s e t income on t h e f o u r

month i n t e r v a l . I n Tab le 12 t h e f i r s t row shows t h a t n e a r l y th ree-

q u a r t e r s of t hose i n deep c r i s i s r e c e i v e cash t r a n s f e r s and about a t h i r d ." of t h o s e whose r e s o u r c e s command between 0.5 and t h e pove r ty l i n e a r e

r e c i p i e n t s . The second row of t h e t a b l e informs us t h a t r e c i p i e n c y of

t h e s e b e n e f i t s r anges between 12 and 20 p e r c e n t of t h e poor who a r e not

i n crisis. S i n c e t h e s e pe rcen tages a r e below t h o s e i n t h e f i r s t two

columns, c l a s s i f y i n g those i n need by t h c poverty measure r a t h e r than

c r i s i s would produce a lowcr average r a t e of rec ip iency by persons wi th

u m e t need. Thc t h i r d row i n d i c a t e s on even sma l l e r r ec ip i cncy r a t e f o r

t h o s e who a r e n e i t h e r poor nor i n c r i s i s . The second panel of t he t a b l e

show a s i m i l a r a n a l y s i s f o r non-cash b e n e f i t s c o n s i s t i n g o f - f o o d stamps,

WIC, and energy a s s i s t a n c e . For both k inds of b e n e f i t s r ec ip i ency

d e c l i n e s monotonical ly wi th t h e c r i s i s r a t i o and the poor r e c e i v e a t a

g r e a t e r r a t e t han t h e non-poor.

Some i n d i c a t i o n of t h e c o n c e n t r a t i o n of expendi tures on t h e most

needy i s g iven by t h e a n a l y s i s of s h a r e of b c n e f i t s accor idng t o t h e same

mat r ix . For cash t r a n s f e r s s even ty percent a r e d i r e c t e d t o persons i n

crisis. S l i g h t l y more than two a d d i t i o n a l percent of b e n e f i t s a r e paid

t o t h e poor who a r e no t i n c r i s i s . Th i s sugg'ests t h a t t h e 14 pe rcen t of

pe r sons who a r e poor but not i n crisis seldom meet e l i g i b i l i t y c r i t e r i a

t o p a r t i c i p a t e i n means-tested programs. Conversely, f o r r ea sons t h a t

may be e n t i r e l y c o n s i s t e n t wi th t h e mandates of a number of means-tested

programs, 27.5X of c a s h b e n e f i t s a r e pa id t o persons who a r e no t poor.

The sha r i o f non-cash b e n e f i t s t h a t is rece ived by persons i n crisis

i s l a r g e r t han f o r ca sh b e n e f i t s . Few b e n e f i t s a r e paid t o poor t h a t a r e

n o t i n c r i s i s . Almost no non-cash b e n e f i t s a r e paid t o persons whose

r e s o u r c e s i n t h e absence of means-tested program p l a c e them a t o r above

tw ice t h e pover ty th re sho ld .

We conclude t h a t t h e crisis measure g i v e s a c l e a r e r unders tanding of

mechanisms by which means-tested t r a n s f e r s a r e d i s t r i b u t e d than t h e

pove r ty r a t i o , which would c l a s s i f y a l l persons shown on the rows . .

l a b e l l e d ( B ) a s poor. It does t h i s wi thout i nco rpora t ing s p e c i f i c s about

t h o s e d i s t r i b u t i o n mechanisms, bu t relies on o concept of p o t e n t i a l con-

sumption f o r i t s conceptua l underpinnings.

The i m p l i c a t i o n s of Tab le 1 2 f o r t h e cxpected b e n e f i t paid a r e shown

i n T a b l e 13. Columns 1 and 2 d i s p l a y t h e mean payment acco rd ing t o t h e

c r i s i s measure and pover ty c l a s s i f i c a t i o n used i n Tab le 12. Again, t h e

expec ted payment d e c l i n e s monotonica l l ly wi th i n c r e a s e i n t h e c r i s i s

r a t i o . I n t h e c a s e of non-cash programs t h i s i s t h e r e s u l t of both

d e c r e a s e s i n e l i g i b i l i t y and t h e mean payment t o r e c i p i e n t s a s t h e l e v e l

o f t h e c r i s i s r a t i o r i s e s . For ca sh programs t h e r e a r e a number of r ec i -

p i e n t s who r e c e i v e l a r g e payments d e s p i t e a h igh c r i s i s r a t i o , s o t h a t

most of t h e apparen t d e c l i n e is due t o r e d u c t i o n i n r e c i p i e n c y r a t e s .

Column 3 of Table 1 3 shows t h e d i f f e r e n c e between t h e pover ty gap and

a v a i l a b l e r e s o u r c e s f o r each group. A n e g a t i v e amount i n d i c a t e s resour-

ces i n exces s of t h e pover ty t h r e sho ld .

We can f u r t h e r view t h e r e spons ivenes s of t r a n s f e r s t o need by

g raph ing t h e r e l a t i o n s h i p . For convenience we scale t h e amount of

t r a n s f e r payments r ece ived by t h e pove r ty t h r e s h o l d , c a l l e d r e l a t i v e

t r a n s f e r s , and compare i t t o t h e crisis gap s c a l e d by t h e same th re sho ld ,

c a l l e d t h e r e l a t i v e c r i s i s gap. (The r e l a t i v e crisis gap e q u a l s one

minus t h e c r i s i s r a t i o . ) F i g u r e 1 d i s p l a y s t h i s r e l a t i o n s h i p . With t h i s

s c a l i n g , t h e d o t t e d 45 deg ree l i n e i n t h e f i g u r e shows t h e l e v e l of r e l a -

t i v e t r a n s f e r s necessary t o e l i m i n a t e t h e crisis gap. Thus t h e d i s t a n c e ' \ a

between t h i s l i n e and t h e e s t ima ted l e v e l of t r a n s f e r s shows t h e u n f i l l e d

cr is is gap. (The e f f e c t of a more l i b e r a l pove r ty t h r e s h o l d can be s e e n

by d i s p l a c i n g t h e l i n e t o t h e l e f t , as would be t h e c a s e f o r t h e Food

Stamps program which r ecogn izes a need t o pay some b e n e f i t s t o f a m i l i e s

u p t o 125% of t h e pover ty th reshold . )

The s o l i d l i n e segments show t h e o r d i n a r y l e a s t squa re s r e g r e s s i o n

l i n e s f o r r c l a t i v c t r a n s f e r s on t h e r e l a t i v e gap, run s c p a r n t e l y f o r each

o f t h e i n d i c a t e d segments; t h e r e a r e a t l e a s t 950 unweighted o b e c r v a t i o n s

on each segment. TIie d o t shows t h e mean f o r t h e o b s e r v a t i o n s i n each

segment . . The kinked d o t t e d l i n e shows a s p l i n e r e g r e s s i o n of t h e r e l a -

t i o n where t h e endpoin ts of t h e segments a r e cons t r a ined t o meet. Table

1 5 p r e s e n t s c o e f f i c i e n t s and summary s t a t i s t i c s f o r t h e s p l i n e

r e g r e s s i o n .

A s i s appa ren t i n t h e f i g u r e , persons w i th smal l c r i s i s gaps a r e on

ave rage moved ou t of c r i s i s , bu t t h e t r a n s f e r system a l lows i n c r e a s i n g

p r o p o r t i o n s of unmet need u n t i l t h e r e l a t i v e gap r eaches 075. Then t h e

t r a n s f e r system responds w i t h a d o l l a r of t r a n s f e r f o r a d o l l a r i n c r e a s e *

i n need. Also o f i n t e r e s t i s t h e d i s p e r s i o n - o f t r a n s f e r s f o r persons o f

e q u a l need. Large d i s p e r s i o n i n d i c a t e s t a r g e t t i n g on a b a s i s o t h e r t h a n

need - - r ed i s t r i bu t ions among persons w i t h t h e same need could i n c r e a s e

ave rage w e l l being. The R-squared f o r t h e s p l i n e r e g r e s s i o n shows t h a t ,

f o r t h e group o f persons w i t h p r e w e l f a r e cr is is r a t i o s l e s s t h a n 3, 45

p e r c e n t (1-,552) of t h e v a r i a n c e i n t r a n s f e r s is no t expla ined by

v a r i a t i o n i n t h e l e v e l of need.

One might a s k i f t h i s i s a r e a s o n a b l e summary of means-tested

programs when w e know t h a t e l i g i b i l i t y i s f r e q u e n t l y determined by f ami ly

c h a r a c t e r i s i r i c s . F i g u r e 2 shows a s p l i n e r e g r e s s i o n f o r each of t h e I.

f o u r household t y p e s ana lyzed e a r l i e r . A good p a r t of t h e d i s p e r s i o n i s

accounted f o r by household s t ruc ture- -an F t e s t shows t h a t t h e coef-

f i c i e n t s d i f f e r s i g n i f i c a n t l y a c r o s s t h e groups. Somewhat s u r p r i s i n g l y ,

t h e group r e c e i v i n g t h e l a r g e s t expected t r a n s f e r s a r e marr ied coup le s

w i t h o u t c l i i l d r e n . T h i s g roup l i k e l y i n c l u d e s many e l d e r l y who r e c e i v e

SSI and c e r t a i n means- tes ted v e t e r a n ' s b e n e f i t s . The l e a s t t a r g e t t e d

g r o u p is m a r r i e d c o u p l e s w i t h c h i l d r e n . Based s o l e l y on t h c c r i s i s g a p

a s a measure o f need, r e d i s t r i b u t i o n toward t h i s g roup i s w a r r a n t e d .

The R-squared i n t h e bottom p a n e l of T a b l e 15 shows t h a t t h e r e is a

good d e a l of d i s p e r s i o n of t r a n s f e r s even w i t h i n t h e s e housellold groups .

T r a n s f e r s t o s i n g l e head househo lds w i t h c h i l d r c n show t l ie l e a s t

u n e x p l a i n e d v a r i a t i o n (34 p e r c e n t ) , w h i l e t h e m a r r i e d wi t l iout c h i l d r e n

g r o u p shows t h e most (72 p e r c e n t ) . Again, t h i s l a t t e r g roup l i k e l y mixes

e l d e r l y who r e c e i v e SSI mixed w i t h younger c o u p l e s who r e c e i v e no th ing .

12. CONCLUSION

We a r g u e t h a t t h e o f f i c i a l p o v e r t y measure based on c a s h income is a

d e f i c i e n t measure o f h a r d s h i p , p a r t i c u l a r l y f o r s h o r t a c c o u n t i n g p e r i o d s .

We p r o p o s e a n a s s e t a d j u s t e d p o v e r t y measure , o u r cr is is measure , t h a t

s c r e e n s o u t t h o s e p e r s o n s w i t h l i q u i d a s s e t s a d e q u a t e t o m a i n t a i n con-

sumpt ion a t t h e p o v e r t y t h r e s h o l d l e v e l d u r i n g t h e a c c o u n t i n g p e r i o d .

T h e d i f f e r e n c e i n l e v e l s between t h e two measures r e v e a l t h a t a p o r t i o n

of t h e o f f i c a l l y measured poor a re m i s c l a s s i f i e d a c c o r d i n g t o o u r crisis

measure . F u r t h e r , t h e p o v e r t y measure s u b s t a n t i a l l y o v e r s t a t e s t r a n -

s i t i o n s i n o r o u t o f h a r d s h i p - - t h o s e i n c r i s i s , t h e asset and income

p o o r , show much lower m o b i l i t y t h a n t h e o f f i c a l l y measured c a s h income

poor.

F o r some g r o u p s , l i k e nonwhi tes o r s i n g l e head h o u s e h o l d s w i t h

c h i l d r e n , t h e two measures d o n o t d i f f e r by much; t h e s e g r o u p s h o l d few

a s s e t s . For t h e e l d e r l y and m a r r i e d c o u p l e s w i t h o u t c h i l d r e n t h e

measures d i f f e r s u b s t a n t i a l l y . When wc look a t t h e t a r g c t t i n g of means

t e e t e d t r a n s f e r programs, w e f i n d t h a t . programs tend t o be t a r g e t t e d more

toward those ' i n c r i s i s than tlrose i n o f f i c i n l povcrty. The o f f i c a l poor

who a r e not i n c r i s i s do not r e c e i v e many t r a n s f e r s , p robably due t o

a s s e t tests i n t r a n s f e r programs.

~ i v e n t h e sample des ign of SIPP, w e have most conf idence i n measures

t aken on a four month b a s i s . One advantage of subnnnual measures i s t h a t

we can more c l o s e l y match household composi t ion t o income. F u r t h e r , w e

c an more a c c u r a t e l y p o r t r a y h a r d s h i p a t a po in t i n t ime a s long a s a s s e t s .

have been inc luded a s resources . The S I P P does not a l l ow computat ion of

a s s e t s on a monthly bas i s . Aggregat ion t o annual measures r e q u i r e s

sample weight ing f o r a t t r i t i o n , l o n g i t u d i n a l impu ta t i on of miss ing d a t a ,

and methods f o r handl ing changes i n fami ly composition. Our r e s u l t s

s u g g e s t t h e importance of g a t h e r i n g a s s e t i n fo rma t ion on a subannual

b a s i s i n o r d e r t o measure ha rdsh ip on a subannual ba s i s .

Along wi th t h i s l a s t sugges t ion , f u r t h e r work showing how t h e

t r a n s f e r system a f f e c t s t h e consumption p a t t e r n of households seems a

u s e f u l ex t ens ion . T h i s would r e q u i r e comparisons a c r o s s accoun t ing

p e r i o d s t h a t c o n s i d e r t h e p o t e n t i a l l a g of t h e t r a n s f e r system response

t o need. Improved d a t a on a s s e t s o r a c t u a l consumption of households

would be necessary. Moreover, t h e e f f e c t s of changes i n m a r i t a l s t a t u s ,

o r o t h e r household compostion e f f e c t s , should be considered. On a suban-

nual b a s i s , measurement of w e l l be ing depends on unders tanding how

r e s o u r c e s , both income and a s s e t s , a r e d i s t r i b u t e d when household com-

p o s i t i o n changes.

Notes

l u e exc lude persono from t h c sample who r e p o r t d o t e f o r less than t h e

4 l n o n t h r e f e r e n c e per iod. I n p a r t , t h i s d e c i s i o n was taken because a

h igh p ropor t i on of such persons have imputed da ta . Deceased persons and

pe r sons who move out of sample households wi thout i n t e r v i e w s a r e type z

nqnrcponse and w i l l r e c e i v e a completely imputed record . T h i s procedure

does no t exc lude persons who move and a r e in te rv iewed a t t h e i r new

a d d r e s s , and whose presence i n a n o t h e r household e a r l i e r i n t h e r e f e r e n c e

p e r i o d i s a p p r o p r i a t e l y recorded by month.

S h o r t and McArthur (1986) e s t i m a t e t h e a t t r i t i o n cumula t ive ly t o wave

4 f o r persons 1 5 y e a r s of age and old.er i n r o t a t i o n groups 1-3 of t h e

sample. The a t t r i t i o n is 17.80 p e r c e n t , g i v e n t h e i n t e r v i e w i n wave 1.

The s l i g h t i y d i f f e r e n t r u l e f o r i n c l u s i o n s t a t e d above y i e l d s a t t r i t i o n

o f 16.15 p e r c e n t (44,639/53,172) f o r a l l persons l i s t e d i n wave 1.

2 ~ h i s c a l c u l a t i o n assumes t h a t a l l such accoun t s e a r n t h e same r a t e

of i n t e r e s t . It a l s o assumes t h a t a s s e t s are c a r r i e d over i n t o t h e

f o l l o w i n g per iod .

Behrens , J e a n and Eugene Smolensky. " A l t e r n a t i v e D e f i n i t i o n s o f Incornc

R e d i s t r i b u t i o n . " , P u b l i c F i n a n c e 2 8 (1973): 315-332.

Bixby, L., e t a l . Demographic and Economic C h a r a c t e r i s t i c s of t h c Aged:

1968 S o c i a l S e c u r i t y Survcy. S o c i a l S e c u r i t y A d m i n i s t r a t i o n ,

R e s e a r c h Report No. 45 (Wasllington, D.C. : Government P r i n t i n g

O f f i c e , 1975).

C i t r o , Cons tance F. and J o h n Czajka . August 1982. " A n a l y s i s of

Household Income and P o v e r t y S t a t i s t i c s under A l t e r n a t i v e Measures o f

Household and Family Composit ion." P r o c e e d i n g s of t h e Survey

R e s e a r c h S e c t i o n o f t h e American S t a t i s t i c a l A s s o c i a t i o n .

D a n z i g e r , Sheldon, J a c q u e s v a n d e r Gaag, Eugene Smolensky, and Michael

T a u s s i g . "Income T r a n s f e r s and t h e Economic S t a t u s o f t h e E l d e r l y , "

i n M. Moon (ed. ) , S o c i a l Account ing f o r T r a n s f e r s . N a t i o n a l Bureau

of Economic Research , S t u d i e s i n Income .and Weal th 48. Chicago:

U n i v e r s i t y o f Chicago P r e s s (1984): 239-276.

David, Mart in . "Welfare , Income and Budget Needs." Review of Economics

and S t a t i s t i c s 4 1 (1959):

David, M a r t i n and J o h n F i t z g e r a l d . "Measuring P o v e r t y and

C r i s i s - - I n s i g h t s i n t o SIPP Data Qua l i ty . " P r o c e e d i n g s o f t h e UIS-

Bureau o f Census T h i r d Annual R e s e a r c h Confe rence , 1987.

Deaton, A. S. and J. N. J. Muel lbauer . "An Almost IdeaPbDemand System."

American Economic Review 70 (1980):

Hansen, W. Lee and B u r t o n Weisbrod. "An Income-Net Worth Approach t o

Measur ing Economic Welfare." American Economic Review 58 (December

1968): 1315-1329.

Hanushek, Eric A. and Roberton Ui l l i ams . " A l t e r n e t l v e Povcrey Meesures

and t h e A l l o c a t i o n of Fede ra l B e n e f i t s , " Paper p re sen t ed a t t h e

Burenu of t h c Census Conference on Measurement of Noncash B e n e f i t s ,

Dee. 12-14, 1985.

I n s t i t u t e f o r Research on Pove r ty (1977) , Conference on The Treatment of

A s s e t s and Income from A s s e t s i n Incornc-Conditioned Govcrnincnt

B e n e f i t Programs, Techn ica l Pape r s prepared f o r t h e I n s t i t u t e and t h e

F e d e r a l Counci l on Aging.

McMillen, David B e and Danie l Kasprzyk. 1987. "A F u r t h e r Examination of

Non-Sampling E r r o r I s s u e s f o r Pane l Surveys: SIPP a s a Case Study."

Proceedings of t h e Survey Research S e c t i o n of t h e kne r i can

S t a t i s t i c a l A s s o c i a t i o n , 1986.

Ruggles, Pa.t and Roberton Williams. " T r a n s i t i o n s I n and Out of Poverty:

N e w Data from t h e Survey of Income and Program P a r t i c i p a t i o n . " Paper

p re sen t ed a t t h e A l l i e d S o c i a l S c i e n c e A s s o c i a t i o n Meeting, New

Or l eans , December 1986.

Sadka, Efriam and I rw in Gar f inke l , and Kemper Moreland. "Income T e s t i n g

and S o c i a l Welfare: An Optimal Tax-Transfer Model." I n I r w i n

G a r f i n k e l (ed.) , Income-Tested T r a n s f e r Prograns: The Case For and

A g a i n s t (Academic P r e s s : New York, 1982).

S h o r t , Kath leen S. and E d i t h K. McArthur. 1987. "L i f e Events and Sanple

A t t r i t i o n i n t h e Survey of Income and Program P a r t i c i p a t i o n . "

Proceedings of t h e Survey Research S e c t i o n of t he American

S t a t i s t i c a l Assoc i a t i on , 1986.

S t e u e r l e , Eugene and Nelson McClung. "Wealth and the Accounting Pe r iod

i n t h e Measurement of Means." Techn ica l Paper V I (Feb. 1977) i n The - Measure of Poverty. HEX r e p o r t . Washington, D.C.: GPO.

U.S. Bureau of t h e Census. proceed in^^ of n Confcrencc on the Valunt ion

of Non-Cnah n c n c f i t s . December 1985.

van d e r Gaag, J acuqes , and Eugene Smolensky. "True Ilouschold Equivalence

S c a l e s and C h a r a c t e r i s t i c s of t h e Poor i n t h e Untted S t a t e s . " Rcvfew

of Income and Wcalth (March 1982): 17-28.

Vaughn, Dcnton. 1985. "Opera t iona l i z ing t h e Poverty Line i n a Survey

Using Subannual Reference Per iods ." Proccedinss of t h e Survey

Research S e c t i o n o f t h e American S t a t i s t i c a l Assoc ia t ion , 1985.

Weinberg, Daniel . " F i l l i n g t h e Povcr ty Gap: Mult i p l e T r a n s f e r Program

P a r t i c i p a t i o n . " J o u r n a l of Human Resources 20 (lS985): 64-89.

. " F i l l i n g t h e Pover ty Gap, 1979-1984: Mul t i p l e T r a n s f e r Program

P a r t i c i p a t i o n . " Paper p re sen t ed a t t h e 1986 J o i n t S t a t i s t i c a l

Meetings i n Chicago (Aug. 1986).

Weisbrod, Burton. " C o l l e c t i v e Act ion and t h e D i s t r i b u t i o n of.Income: A

Conceptual Approach." I n The Ana lys i s and Evalua t ion of P u b l i c

Expendi tures : The PPB System. Vol. 1. Washington, D.C. : U.S.

Government P r i n t i n g O f f i c e , 1969.

Williams, Roberton. "Poverty R a t e s and Program P a r t i c i p a t i o n i n t h e SIPP

and t h e CPS." Proceedings of t h e S o c i a l S t a t i s t i c s S e c t i o n of t h e

American S t a t i s t i c a l A s s o c i a t i o n (1986): 64-72.

- - --- - - - ------. _ .._ _ _ _ _ _ _ - . - . - _.--.---- ,'.I ,,; \\.cl[arc u i th: (;rl*?.i < I .5 Cru, qdirrr unit i n ~ l c . ~ indca -

o[ the pupuiation [h that icvcl or WE[- f f - 3 1w.e J S 4 tCO.0

2Y.7

'e

~pnsabie i n c . ~ r n c ~ I the < slo,o 2 S,oo?l < s i o c o cndinc u n ~ : I

of the po~ulac inn ,th the indicated in- 0.5 19.1 a o 14.0 0.1

____I - me and \vrlfa:e I , of the population bnsc wcii::c it mi,- ,presenrrd by the in- . ¶r.I I a4.1

,me bra&:: in line 3

< $:coo 2 s:ooo < $2- Z Si- he rpcndin? unit - 5 o! L9e population 1 w i t h !be inclicalrd in- 13.1 . t0.3 66 r r j . 1-7 ( 6 2 3 1w.o

:erne and uei!.lte - - $ a[ the ?opula:ion r.bose welfare ii mis- 14.0 ~cprrsrntcd by the in- :ome braclcr in tifie 6

Disposab!~ income o i< 2 ~ C S O < 33SO 2

CIJ; of the popuI3tion rnrh the B d i c a t c d in- S-1 9-3 53.3 x t o . 5

come and \vc:!are - - 5 of t4e pcpulation whose wciilre is mu- 144 rtpruent: l by the in- come brdclrt? In line 9 -- I . --

Iurc e : $fa rt in David .

( 1 An Income-::ct tJort;i Approacil t o Economic Welf arc"

TIIE IdI::TiT CiYi I:CC:;C:!I C ::':L71C:: 58 (I)ccen!~cr 1368 j

TABU ~ - S ~ X C E X S AXD J 'E~CL:;T.~LES OF FAXILIES \ \ . I T I I I>.COI[LS ~ v o I ~ c o v r - S E T \Voun~ or Lrss TIMX SJ,000 rcc \'r.iu. .\sn or .\four TIIAX $10,G00

rcw YEA#, D Y .\CT or I ~ E M , 1962 r

* Source: Hansen and iJeis5rod.

I

Age of Famiiy

Age of Income over- S~0,oOO 4 Per Cent I n t e r u t 10 Per Ccnt Intczt Family Rate

H s d Rate

Rate 1 Rate K e r d

Pu Ccnt . Families

Under 35 (1) 17

(21 (3 1 2.0

(4)

3S.Q 17 2.0

13 2.7 12 2.7 5% 19

2.6 1.4 17 1.2

43 and over 4 7 1.1

3.2 AU

36 2.4 32 2.2 20 9.3 13 8.4 1.0

&lore T- S10,W ?er Y u r

F-lie 1Vith I FarniEa With Currcat Income--'

Current J f o ~ e y Net \\'or& Above S10,M;O

- Less Thn $3.000 Per Yclr

Sumbe: of

Famitic Q ~ X C J ~ )

(6) 1.3 7.2 2.6 1.4

12.5

Per Ccnt

Families \$?& Current Sfone:r Income Delotv

$3,000

Per C u t

Famitin 1Vi:h Current income-- S e t \VorJ1 Celow S3,CCO, a t .' -

4 Pcr Ceat Interest 10 Per Ccnt Lntercst

S u m b c r AU

1 Families Famiiies in ,,6c

( o n G~~~~

Under 33 9 (4) 1.2

3s-54 24 s. 1 55-64

6.1 22 2.2

6J a d over 9 All

1.0 1s I 8.3 1o.s

( 5 ) 11 34 36 2 1 27

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Table 4

Account ing P e r i o d D i f f c r e n c c s i n P o v e r t y and C r i s i s bteasurco: 1984 Longi tud in i i l Sample from SIPP*

R e f e r e n c e P e r i o d P o v e r t y C r i s i s

( 1 ) Annual (months 1 t o 1 2 ) 11.3 10.4

( 2 ) 4 months (average)** 13.17 11.32 D i f f e r e n c e s from Annual 1.87 1.12 D i f f e r e n c e s as P e r c e n t of ( 1 ) 14.2 10.8

( 3 ) 1 month (average)*** 14.04 11.03 D i f f e r e n c e from Annual 2.74 .63 D i f f e r e n c e as P e r c e n t o f (1) 24.2 6.06

*Pover ty and Crisis Measures are weighted c o u n t s of pe rsons . Unweighted sample s i z e 44639. . **Average o f p e r i o d s 1, 2 a n d 3.

***Average of months 1, 5, and 9.

One, Four and Twclvc Month Poverty and C r i s i s Mesures Compared: 1984 Longitudinol Salnplc

~ c f crence D i f f c r c ~ l c c Diffcrcnce a s Period Date Poverty C r i s i s i n Level Percent of poor

1-4 13.86 11.83 2.03 14.6 5 -8 13.07 11.39 1.68 12.9 9-1 2 12.59 10.73 1.86 14.8

(mean 14.0)

Annual 1-12 11 -3 10.4 0.9 7.96

Pwerty d Crisls Tra~wftions: 1984 bngitulinal Sa1n11Lc

Onc bnth Tratsitions Four knth Trm;ition.;* h t h 1 to 5 Ebnth 5 Lo 9 l'ericd 1 to 2 Period 2 to 3

Alwys Poor Total IW 23444.1 21528.5 22914.4 20961.7 X Always Crisis 82.7 82 .O 88 .O 88.5 X Never Crisis 10.6 10.7 5.9 5.6 X Enter or Exit Crisis 6.7 7.3 6.1 5.9

Enter Poverty Total N 8276.5 9400.9 6945.6 7785.4 X Enter Crisis 60.8 62.3 71.6 69.5 X W e r Crisis 39.2 37.7 28.4 33.5

Exit Pwerty Total N 10082.9 10192.2 8751.1 8898.3 X M t Crisis 60.4 67.5 72.7 76.3 X Never Crisis 39.6 32.5 27 .3 23.7

Never Poor Total N 186608.0 187289.9 189800.5 190766.2 X k e r Crisis 100. 100. 100. 100.

*Period 1 is lmnths 1 to 4, Period 2 is mnths 5 to 8, Period 3 is mnths 9 to 12.

T a b l e 6h

Percent of Individuals i n Poverty and Crisis During 1984, by Accounting Period and Iltstory

(Sub-Annual Dc tail)

Dif f crence a s Poverty C r i s i s Percent of Poor

( 1 ) Annual (no d e t a i l ) 11 .3

( 2 ) Four-month ( 3 sub-annual -per iods) His tory: percent poor ( c r i s i s ) ( a ) Always 7.92 ( b ) Sometimes, not always 11.33 ( c ) Never 80.75

( 3 ) History a s percent o f annual (a ) Always

(a+b) Ever

Table 7

A l t e m t l v c h s c t &awrre by C r M s Status 1984 Lorgitdixd h p l c

Distr ibution of t l ~ Capital Vdw of Property Less In teres t Incanc (calld Othcr Assets)*

Population WMX &sets a t ~ , i r u r f x of Period (4 m n t h msure) Pcrce~t of ROW Total

Nqa t ivc Zero 1 to 2CW 2001 t o 1OOOO 1m plus Total

I n Crisis Period 2" .43 94.1 2.47 1.20 1.81) 1WL

In Crisis Per id 3 .19 94.1 3.14 1.23 1.33 100%

*lncldes stocks, rental ~ o p c r t y irulme, ad all other mninterest bear-, prcr perty irurne assets. (2mer ocarpied tPusirg aml oonsuner durables excluld.

*%ta for the Period 1 calculation m s ~ v ~ n t l y m t extracted by us fran SIPP.

T a b l e 8

P o v e r t y and C r i s i s L c v c l s by Household S t r u c t u r e and Rocc:

Wave 3 C r o s s S e c t i o n *

Four Month M c n ~ u r c s Household S t r u c t u r e Povcr t y C r i s i s U i f f . a s P e r c e n t o f a t F i r s t I n t e r v i e w ( 1 1 (2 1 X o f Poor P o p u l a t i o n

Whi te Black

A . P a n e l A:

A.1 White:

S i n g l e w/ k i d s S i n g l e w/o k i d s M a r r i e d w/ k i d s P la r r i ed w/o k i d s

A02 Nonwhite:

Households o f R e l a t e d I n d i v i d u a l s

S i n g l e w/ k i d s S i n g l e w/o k i d s M a r r i e d w/ k i d s M a r r i e d w/o k i d s

B. P a n e l B: Households I n c l u d i n g N o n r e l a t e d I n d i v i d u a l s

B.1 White:

S i n g l e w/ k i d s 20.1 19.4 3.5 S i n g l e w/o k i d s 6.9 5 .1 2 6 , l M a r r i e d w/ k i d s 7.2 6.4 11.1 M a r r i e d w/o k i d s 4 . 8 4 .8 0 .

B . 2 Nonwhite:

S i n g l e w/ k i d s 37.8 34.5 8.7 S i n g l e w/o k i d s 16.1 16.1 0. M a r r i e d w/ k i d s 30.8 30.8 0 . H a r r i e d w/o k i d s N.A. .. N.A. N.A.

C. All Households

C . l White 10.22 8.4% 17.6X

C.2 Nonwhite

*Wave 3 o f S IPP h a s unweighted sample s i z e o f 48357. T h i s c r o s s s e c t i o n i n c l u d e s more p e r s o n s t h a n t h e l o n g i t u d i n a l sample (44639) s i n c e t h e l o n g i t u d i n a l sample r e q u i r e s c o n t i n u o u s sample i n c l u s i o n f o r 3 p e r i o d s *

Table 9

Poverty and C r i s i s by Age and Scx of Individtlals: Wave 3 Cross Section

Age and Sex Four hlon t t ~ Flcas~lrcs

Poverty Crisis 1) i f f . as . (1) ( 2 ) % of poor

P;il Male Female

A l l Male Female

A l l Male Female

A1 1 Male Female

A l l Ma1 e Female

A l l ' Male Female

A l l Male Female

P o v e r t y and C r i s i s by Race and Education: Wave 3 Cross S e c t i o n

Four Month Ncnsurcs Populat ion D i f f . a s

Race Grade Completed ( m i l l i o n s ) Poverty C r i s i s X o f poor --

A . White:

B . Nonwhite: (12 5 1 2 > 12

*Table shows persons aged 16 o r o l d e r .

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Table 12

T a r g e t E f f i c i ency of Cash and Non-Cash Means Tes t ed Programs C l a s s i f i e d Pre-Welfare Poverty and

Crisis Measures (Wave 3 Cross Sec t ion )

E f f i c i e n c y Ta rge t Pre-Welfare C r i s i s Ra t io Measures 6 Popula t ion 2.0 o r Mean P e r c e n t

? rogram 0 t o .5 .5 t o 1.0 1.0 to 1.5 1.5 t o 2.0 Plore

Cash t r a n s f e r s % r ece iv ing A. c r i s i s <l 73.6 30.1 - - - -

B. poor, no t A. 20.5 16.5 11.9 10.9 C. n e i t h e r 14.3 8.8 3.3

sha re of cash t r a n s f e r s A. c r i s i s <I .585 ,701 - - - - ,701 B. poor, no t A. .010 -012 .023 -023 C. n e i t h e r T o t a l

Nan cash t r a n s f e r s X rece iv ing A. c r i s i s <1

B. poor, n i t A. C. n e i t h e r

s h a r e of non-cash t rans£ e r a

I ' A. c r i s i s (1 B. poor, n z t A. C. n e i t h e r T o t a l

Table 13 .

Mean T r a n s f e r Payments and Crisis Gap f o r D i f f c r c n t Ta rge t Populat ions

(Wave 3 Cross Sec t ion )

I -- - --

Pre-We3 f a r e C r i s i s Mean Tran fc r Mean Perccn t Mensurc, Targc t Cash Non-Cash C r i s i s of Gap Pe rcen t of Popula t i on COP Unf i l l ed Popula t ion

I A. Crisis <1 0 to .5-

I B. Poor, not c r i s i s <I 1.0 to 1.5 279 139 - 516 *

I 1.5 to 2,O 157 69.1 - 2009 * 2.0 o r more 158 28.2 -41089 *.

I C. Nei ther poor nor

c r i s i s <1 1.0 to 1.5- 17 1 89.9 - 906 t 6.32 1.5 to 2.0 83.0 34.9 - 2569 * 7.64

I - 2.0 o r more 32.4 5.77 -30336 * 71.8

Mean (To ta l ) 146.8 72.0 - 2221 - 100.0

I *Not meaningful s ince gap is negat ive .

Table 14

S p l i n e R e g r e s s i o n f o r Transfcrff* on Crisis Gap (4 Honth)

A. R e g r e s s i o n C o e f f i c i e n t s : Sample of A l l Persons w i t h Crisis R a t i o < 3, N = 20237 Dcpcndcnt V a r i a b l e : R c l n t i v c T r a n s f e r s = T r a n s f c r s / P o v e r t y L ine S p l i n e d Indcpcndcnt Var inb lc : R e l a t i v e Crisis Gap = Crisis

Gap/Povcr ty L ine

Range of S tandn rd C o e f f i c i e n t S p l i n e E s t i m a t e E r r o r

cons t a n t 075 t o 1. 05 to 075 .27 t o .5 0 t o .25

-.25 to 0 -05 to -025 -05 t o -1. - 1 to -2.

B. Summary S t a t i s t i c s f o r S p l i n e T r a n s f e r Regress ions : By Household S t r u c t u r e Samples I n c l u d e P e r s o n s w i t h C r i s i s R a t i o < 3.

Sample: N R~ a2

1. A l l * 20237 Household S t r u c t u r e :

2. Only r e l a t e d p e r s o n s 19140 .572 ,0268 p r e s e n t

S i n g l e w/o k i d s 2343 .593 .0389 S i n g l e w/ k i d s 3816 .664 .0346 Marr ied w/o k i d s 2323 .278 .0282 Marr ied w/ k i d s -10658 .494 .0196

* T r a n s f e r s i n c l u d e bo th means t e s t e d cash t r a n s f e r s , and noncash t r a n s f e r s .

**Includes households w i t h u n r e l a t e d p e r s o n s p r e s e n t .

Table A - 1

D i s t r i b u t i o n of C r i s i s Wi th in O f f i c i a l Poverty--12-Month Mcnsures

C r i s i s R a t i o P o v e r t y r a t i o <.5* < 1 <1.5 <2.0 2.0+

--

A . P e r c e n t of Row T o t a l

T o t a l s 3.0 7 . 4 7.8

B. Means .of Assets a t Beg inn ing of the P e r i o d

< -5 58 2260 47 30 9980 929 00 1050

T o t a l s 58 116 33 9 625 19400 14230

P o p u l a t i o n r e p r e s e n t e d \

by w e i g h t s ( m i l l i o n s ) annual 6.8 .l7.0 17.8 19.8 166.9 228.4

- -

*0.1% of t h e p o p u l a t i o n r e p o r t s n e g a t i v e income.

T r a n s f e r Means and Pcrccnt Rccelving by liouschold S t r u c t u r e , Wave 3 Cross Sec t ion

~Iouseholdr; of Relatives R e l a t i v e C r i s i s Gap S i n g l e S i n g l e Married Married

( = C r i s i s GapIPov. Line) A1 1 w/o k i d s w/ k i d s w/o k ids w/ k i d s

A. Percent Receiving Means Tested Cash o r Noncash Trans fe r

-2 and below -2 t o -1 -1 t o -.5 -05 t o -.25 -a25 t o 0 0 t o .25 025 t o .5 05 t o 075 075 t o 1.

B e Mean R e l a t i v e T r a n s f e r (=Transfer/Pov. Line) f o r Those Receiving Trans fe r s

-2 and below -2 t o -1 -1 t o -05 -05 t o -.25 -025 t o 0 0 t o -25 025 t o 05 - 5 t o .75 075 t o 1

Table A-3

Pre a d kst-welfnre Four b n t h Poverty a d Crisls bsures

Post-Welfare CrlsIs R-~tio 0 t o .5 .5 to 1 1 to 1.5 1.5 to 2 2+ Totdl

A. be-klelfare Versus Post Wfare* Crisis (4 b n t h ) (Percent of Row Totals)

Crisis .5 to 1 74.3

Ratio 1 t o 1.5

Post-Welfare Poverty Ratio 0 t o .5- .5 t o 1 1 t o 1.5 1.5 t o 2 2+ Total

B. R d e l f a r e Versus Post klfare* Poverty (4 Month) (Percent of RDw To-)

Poverty 05 t o 1

Ratio 1 to 1.5

1.5 t o 2

2+

Total

*Post-Uelfare irrludes both cash and r o ~ c a ~ h transfers; t amat ions for persons, weighted.

Figure 4 . Spline Regression for Transfers, Persons Aged 61 or Less:

by Household Structure

Sing le w/o kids

- , Sing le w/ kid$

* Married w/o kids

0 Married w/ kids

1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 . 0.6 0.8 1 .O Relative Crisis Gap

a Appendix: Target Efficiency Mcnsures

A. Targct Efficiency and the Accounting Period

'me original definition of tilrget efficiency (Weisbrod 1969) was the proportion of transfer benefits ufiich go to the poor. Such a definition is obviously depcndcnt on the accounting period used to define tlre target Croup,'the poor. !:or exmlple, if those poor in one m n t h are as'iumed to be the relevant target group, and transfers are perfectly targettcd to that group, then i t should not surprise us that target el'ficicncv measured on some other accounting period will be less than 100 percent--those poor in one month and receiving a transfer nny not be poor on an annual basis. Short accounting periods open the possibility of another target efficiency measurement problem: lags in benefit receipt. 1:or exanlple, a person mng receive a benefit pa_vment for previous unemplo~mcnt in the next m n t h uhen the person has a job and other income. The severity of this problem is an empirical issue.

B . Criteria for Transfer Effectiveness hleasures and IVenknesses of Traditional hleasures

Several measures of transfer efficiency have appeared in the literature ranging in time framVkisbrod (1969) to Weinberg (1986)).

1. The proportion of transfer benefits which go to those in households \virh i n c m belmv the poverty line.

2. The proportion of transfer recipients who live in such poor . households.

3. The proportion of transfer benefits used to alleviate poverty (counts benefits only up to poverty line). (U'einberg 1985)

4 . The (mean) proportion of the poverty gap filled. uhere the gap is the difference between pre-transfer income and the poverty line.

5 . The proportion of households n h o are belaw the poverty line after transfers.

These traditional target efficiency measures are not ideal. We propose four criteria for good measures of transfer effectiveness. The list is not exhaustive. ( I ) If m r e real dollars'are transferred to the poor, the measure should rise, other things equal. Total dollars transferred is clearly a relevant measure of how pro-poor transfers are. (11) The measure should camplement the concept of econamic efficiency. Econmic efficiency is meant in.the usual qay: delivery of the same level of benefits at l o w ~ r cost. (111) Dalton's Principle of Transfers: redistributions from the less needy to the more needy within the target population should raise measured effectiveness. ( I V ) The measure should not be sensitive to the exact way we measure the law income target population.

Consider the flrst two criteria. 31easures based on the proportion of benefits which go to those in the target group (measure 1) will not satisfy criteria I. For example, a doubling of the transfer p a w n t s to each recipient increases well b e ~ n g but will not increase this measure. hleasures which use the povertv gap, like measures 3 and 4 , will meet it.\!hlle this criterion has some conceptual appeal, it assumes that w e can choose anv lcvel of funding. In these times of

+ t igllt budgets, i t is perhaps more reasonable to assume a transfer budget

In this.mde1 it is straightforur~rd to show that the nct povcrty g a p after transfcrs sllould be equalized for those with W - I , and transfcrs set to zero for the' others. Define the prc-tronsfcr poverty gilp (i as (;; I . . 'Illis says that all households wit11 W - 1 should have oftcr transfcr inctrnlc of J ' i , 4 i ; + l ' ~ , equal for all households. W e can solvc for J13 a s a function of '1'. thc aggregate poverty gap, and the niunJ~cr of positively wc ightcd I~ouselroltls.

Thus lransfers should correlate exactly with the poverty gap, that is, the of rhc poverty gap f i 1 led m ~ s t be the sunc for all. Of course, other ureigl~ting scf~emcs unuld allowf l~ighcr after transfer gaps for tlrosc with lower urcights. W e suggest a method based on regression to measure departures from this welfare optimum.

Measuring Transfer Effectiveness

The idea of equalizing net gaps at J'E has a graphical interpretation: I

Transfers

Poverty Gap-PL-Y

The social welfare optimum requires that all post-transfer inccrmes lie along a line of slope one and intercept JE in the above picture. That is, all households should be left the same distance belmv, or above, the poverty line. The distance between the 45 degree line and the transfer regression line is the after-transfer gap. Increases in the poverty threshold uould be represented by shifting up this 45 degree line. One measure of effectiveness would be the correlation beturen transfers and the poverty gap--less correlation lowers social wtlfare--but the picture has further implications.

We can run a simple regression of transfers on the poverty gap, T =a+b*G for a particular population of interest, or we can allouTa flexible shape for the regression function as is done in the text. T w attributes are of particular interest:

1. The larger the variance about the regression line, the lower is social welfare. This can be measured by the standard error of the regression, or by the R utiich is unit free but does depend upon b. If the transfer system pays differing amounts to those 1 ~ 1 t h the'iame need, as measured by the poverty gap, social welfare is lowred.

2. The slope of the line should be one for the simple wighting scheme above. If ut use a different \rveighting scheme that weights the poorer more heavily, the after transfer gap should be less for this group. The slope tells us ho\v the transfer system treats those with greater need relative the those with less need.

W e emphasize that these two attributes are not sensitive to the exact definition of the la).! income population or to the definition of the gap. An effective transfer svstem shoujd provide nmre

8 of fixed sizc, and procecd to analyze how effcctivcly i t is uscd.

A s for critcria 1 1 , transfer progrium that arc nlcasured as more target cff icient nrlv be less cconon~ical ly eff icicnt if the taxes implicit in financing the target cfficicnt transfer progrnm cause more inefficiency (dcachveight loss). I t is very difficult to dcal with bcllavioral incentive effects of taxcs in our contcxt in any sinlple (See Garfinkel 0 9 8 2 ) chapters 6 and 8 for exanlple.) As others have donc, we ignore incentive effects.

Next..considcr criteria 1 1 1 , the transfer principle. If we take a dollar from a less needy post-transfer household and give i t to a m o r e nccdy post-transfer houschold, measurcs I arid 2 will not change, violating this criterion. Mcasures 3, 4 and 5 \vill not change if both housclloltls end up above, or both belouq, the poverty line. But these measures lvill change if the less needy l~ousci~old ended up above tlle poverty line, uflile the Inore needy household ended up below it. lllus these measures are s~~n'hilt sensitive to redistributions.

1'0 evaluate the measurcs by criterion IV, lack of sensitivity to the exact definition of the target group, consider raising the poverty line by same proportion. hleasures 1, 2 and 3 imnediatelg rise. suggesting better targeting. Measure 4 will fall and measure 5 will rise. Belowwe propose measures less sensitive to this definition.

C. Alternative hleasures of Transfer Effectiveness

In this section we propose measures of transfer effectiveness based on a social welfare function approach. hleasures developed in this

. uay generally meet criteria I 1 1 since the social welfare function - explicitly values redistributions f r m better to wnrse off. Further, w e

can derive implications from the approach that are not sensitive to the definition of the target group.\Ve develop a descriptive approach that directly addresses the relationship between transfers and the poverty gap for the low incornr population.

A Social Welfare Problem

Assume that we -ant to maximize an individualistic social - welfare function by choosing transfer levels for each household, given a fixed transfer budget of 1' (net of administrative costs). W e assume that household utility is a function of post-transfer incame Y; + T; minus the poverty line consumption level for that household PL;. (Subtracting the poverty 1 ine consumption levels adjusts utility for household size, ie. with equal incomes a smaller household is better off .) The problem is then:

~ a x z \ ~ ; U(Y;+T; -PI.;) set. f_T; =T., T;>O.

uhere 1%' is a social welfare .weight, ubich could be a l l a x ~ d to be larger for those with lower incomes, or could be 1 for those in the population of concern and 0 for others.

T o illustrate our point in the simplest uag, assume ue are only interested in the uvlfare of the broadly defined 10%' income population, say households in the bottom quartile of the income distribution. For these households w e set \\!; = I , and \V; -0 for others.

t

transfers t o those w i t h greater need, defined in any reasonable wdy, a n d should have little v a r i a n c e a c r o s s those o f equal I h e s e a r e the points s t a t c d in the t e x t .